Joseph Lazzaro describes a scenario where failure to capitulate on the fiscal cliff deal offered to the House would have resulted in widespread economic disaster:
But if the Tea Party persists in its “No tax increases, ever” intransigence or it otherwise amends the bill with deep spending cuts that would be DOA in the Senate, jittery financial markets will likely interpret the latter as “gridlock city” in Washington, and look out! U.S. and global stock and bond markets could plunge in the days ahead.
Lazzaro presents a nearsighted context favorable to his characterization of compromise as reasonable. But what of the horizon ahead of us in the wake of compromise? As Simpson and Bowles point out, nothing of consequence has been done to address the national debt, $16 trillion and growing. What are the long-term economic consequences of that?
Tea Party critic and New York Times writer Steven Rattner breaks leftist taboo to tell us:
Government borrowing is still debt that must eventually be paid off, just as we were taught in introductory economics.
Failing to repay the debt would mean not only the ugliness of default but also depriving the next generation of whatever savings their parents parked in government bonds.
And remember that just a small fraction of Treasuries are owned by individual Americans. Institutions and many foreign entities own the rest and are not about to give up claims that they are owed.
The more realistic alternative [to imagining debt will somehow disappear] of continuing to service that debt offers the unattractive eventual prospect of either higher taxes or sharp cutbacks in government programs, or both.
Rattner describes just the tip of the iceberg. U.S. News & World Report financial writer Gary Foreman offers essential reading in “16 Things You Need to Know about Government Debt.” Take the time to review it. He elaborates on the dangers of inflation and how the devaluation of the dollar reduces every consumer’s spending power, obliterates savings, and strangles business and employment opportunities.